Skeat breaks new ground with Galaxy Gold

Brendan Ryan | Tue, 25 May 2010 17:43

[miningmx.com] -- GALAXY GOLD - the new mining venture being developed by entrepreneur Peter Skeat - intends raising up to R400m through a private placing ahead of a listing on the JSE by the third quarter of 2010.

Galaxy will be reversed into an existing JSE-listed company, which Skeat declined to identify during a presentation to financial media in Johannesburg on Tuesday.

The new venture centres on the old Agnes mine near Barberton, which a consortium of investors headed by Skeat bought for R17m in 2008 when it was put up for auction.

Since then, Skeat has invested a further R50m to restart mining operations which have now been running for three months and are building up to reach an initial planned rate of 18,000 tonnes per month of ore mined.

With that money, Skeat has re-commissioned the existing crushing, milling and flotation circuits as well as the elution smelt plant. He has also built a new carbon-in-leach (CIL) plant and a Biox circuit.

Biox technology – developed by Gencor in the 1980s - uses bacteria to dissolve the sulphide-rich ore and liberate the contained gold.

It is a cheaper and far more environmentally friendly process than the previous technology, through which the ore was “roasted” causing serious atmospheric pollution.

Skeat commented that his management team, led by metallurgist and chief operating officer Wayne Hatton-Jones, had built its own Biox plant for less than R15m after being quoted R150m by engineering contracting firms.

“It’s up, it’s working successfully and it’s only the second such plant operating in South Africa,” Skeat said.

At a mining rate of 18,000t/month, Galaxy’s annual gold production will be 23,000 ounces at a cash cost of under $500/oz.

The new capital is being raised to push production to 75,000oz of gold annually by December 2011. It will also fund exploration work intended to increase the gold resource from the current 1 million oz to 2m oz.

That’s where it gets really interesting, because Skeat believes he has hit a “mother lode” at Agnes where the gold resource could be increased to 5m oz by 2014.

Skeat said: “This is the most exciting opportunity I have had in my lifetime working in the South African gold industry.

“It has been overlooked until now because for the past 120 years the focus of the SA gold industry has been on the Witwatersrand, and because of the problems involved in treating sulphide ore.”

In a nutshell, exploration work has so far identified 26 separate orebodies sitting inside the five km-long strike of the Agnes mining lease.

That is central to what comes next in terms of building up mining production at Galaxy, as well as proving up the gold resources.

Galaxy, like the other mines around Barberton such as Pan African Resources’ (Pan African) operations, is a greenstone mine and greenstone mines are infamous for their operating problems.

The reefs are usually narrow, discontinuous in nature, erratic in grade and generally difficult to mine. This can cause serious problems in trying to maintain target production levels.

Skeat’s proposed solution is to use mechanised mining methods exploiting a number of the orebodies simultaneously, and also to make sure his mining plan is fundamentally designed to “under promise and over deliver”.

He intends mining only half the 26 orebodies at any one time, as well as exploiting each of the orebodies being mined at well below the maximum production levels they could support.

That way he has plenty of back-up in terms of alternative available mining face, should one of the operations run into operating or geological problems.

“That is the formula which will overcome the greenstone bugbear.

“These are the new rules which will protect us from the factors that hammered the Eersteling and Barbrook mines, which failed when management tried to drastically increase production,” Skeat said.

Skeat’s plan is to sink one major decline shaft system, from which the haul trucks can access ore from the various shafts being mined and bring it to surface.

The overall result should be operating costs markedly lower than the typical Witwatersrand gold mine.

Industrial relations should also be simplified with Galaxy employing a small, skilled workforce compared with the huge, semi-skilled workforce on the typical deep-level Witwatersrand gold mine.

Skeat believed Agnes would not suffer from the illegal mining problems that have beset neighbouring Pan African because of the complex metallurgical nature of the Agnes orebodies.

“Pan African has high-grade shoots of visible gold that can be recovered by illegals using basic processes like mercury. You cannot do that with our sulphide ores,” he said.

Assuming the mining, geological and technical issues work out the way Skeat believes they will, the only other worry for potential investors in Galaxy must concern corporate developments.

Both Skeat’s previous ventures - the former Afrikander Lease (now Uranium One) and Mintails – ran into problems on that front.

At Afrikander Lease, Skeat wound up in an all-out war with former Uranium One CEO and now Gold One CEO Neal Froneman and the late Brett Kebble.

Mintails was clobbered by a combination of falling uranium prices and management problems with the Australian partners Skeat got into bed with to develop the project.

Skeat said he would have a personal stake of 30% in Galaxy post the fund-raising, and that he was fully committed to ensuring Galaxy delivered on the identified potential.